Income distribution, product quality, and international trade, Vol. 1 of 1

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Income distribution, product quality, and international trade

Author:	Fajgelbaum, Pablo; Grossman, Gene M.; Helpman, Elhanan;	Collection Title:	Policy Research working paper ; no. WPS 5843
Country:	World;	Date Stored:	2011/10/13
Document Date:	2011/10/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	The World Region
Report Number:	WPS5843	SubTopics:	Common Carriers Industry; Transport Economics Policy & Planning; Economic Theory & Research; Markets and Market Access; Transport and Trade Logistics
Volume No:	1 of 1

Summary: The authors develop a framework for studying trade in horizontally and vertically differentiated products. In their model, consumers with heterogeneous incomes and tastes purchase a homogeneous good and make a discrete choice of quality and variety of a differentiated product. The distribution of preferences generates a nested-logit demand structure such that the fraction of consumers who buy a higher-quality product rises with income. The model features a home-market effect that helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade and trade policy for different income groups in an economy.


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